LAPPEENRANTA UNIVERSITY OF TECHNOLOGY LUT School of Business and Management
Master’s Degree Programme in Supply Management
Iida Sarén
SUPPLIER RELATIONS AS A SOURCE OF VALUE CREATION IN OMNI-CHANNEL RETAIL
1st Supervisor: Professor Veli Matti Virolainen 2nd Supervisor: Professor Anni-Kaisa Kähkönen
ABSTRACT
Author: Sarén, Iida
Title: Supplier relations as a source of value creation in omni-channel retail
Faculty: LUT School of Business and Management
Major: Supply Management
Year: 2019
Master’s thesis: Lappeenranta University of Technology, 103 pages, 10 figures, 2 tables, 2 appendices
Examiners: Professor Veli Matti Virolainen Professor Anni-Kaisa Kähkönen
Keywords: Value creation, omni-channel retail, supplier relation, sourcing business model, supply management
The purpose of this master’s thesis is to examine supplier relations as a source of value in the context of omni-channel retail. The main objective is to find out how omni-channel retail may have affected supplier relations as a source of value creation. Thus, this study aims at establishing a comprehensive view about the characteristics and challenges that define omni-channel retail. Also, the value creation logic and best suited supplier relations to meet the conditions of omni-channel retail are examined. This research is conducted as a qualitative multiple-case study by interviewing several case companies and one industry specialist. The study identifies omni-channel retail as a competitive, customer focused, complex and fast-paced business model that requires a flexible and integrated supply chain.
The empirical findings suggest inventory management and seamless order fulfillment to challenge retailers the most. Moreover, channel integration and IT compatibility are emphasized as root causes of supply chain challenges. Value is created through cross- channel synergies by coordinating and integrating supply chain activities. The study shows that supplier relations have become significant sources of value created to consumers by increasingly generating long-term value through commitment, supply chain development and close collaboration with retailers. Although retail requires a mixed sourcing portfolio, relational supplier relationships are best suited to meet the identified supply chain challenges of omni-channel retail. A hybrid sourcing model enables retailers to answer supply chain complexity, uncertainty and competitiveness.
TIIVISTELMÄ
Tekijä: Sarén, Iida
Tutkielman nimi: Toimittajasuhteet arvon luojana omnikanavaisessa vähittäiskaupassa
Tiedekunta: Kauppatieteellinen tiedekunta
Pääaine: Supply Management
Vuosi: 2019
Pro gradu –tutkielma: Lappeenrannan teknillinen yliopisto, 103 sivua, 10 kuvaa, 2 taulukkoa, 2 liitettä
Tarkastajat: Professori Veli Matti Virolainen Professori Anni-Kaisa Kähkönen
Hakusanat: Arvon luonti, omnikanavainen vähittäiskauppa, toimittajasuhde, hankintamalli, hankinta
Tämän Pro-gradu -tutkielman tarkoitus on selvittää, miten omnikanavainen vähittäiskauppa on vaikuttanut toimittajasuhteisiin arvon luojina. Tutkimus pyrkii tunnistamaan omnikanavaisen vähittäiskaupan ominaisuuksia ja haasteita muodostaakseen kattavan kuvan omnikanavaisesta vähittäiskaupasta liiketoimintaympäristönä. Lisäksi tutkimuksessa käsitellään arvon luontia toimitusketjun näkökulmasta. Tavoitteena on myös arvioida minkälaiset toimittajasuhteet parhaiten soveltuvat vastaamaan liiketoimintamallin ja ympäristön asettamiin vaatimuksiin. Tutkimus on toteutettu kvalitatiivisena tapaustutkimuksena. Empiirinen tutkimus suoritettiin haastattelemalla neljää vähittäiskauppaa ja yhtä alan asiantuntijaa. Tutkimus tunnistaa omnikanavaisen vähittäiskaupan nopeatempoiseksi, asiakaslähtöiseksi, erittäin kilpailulliseksi ja monimuotoiseksi liiketoimintamalliksi, joka vaatii joustavaa ja integroitua toimitusketjua.
Empiirinen tutkimus osoittaa varastonhallinnan ja saumattomat prosessit suurimmiksi haasteiksi. Kanavien integrointi, IT järjestelmät ja niiden yhteensopivuus ovat omnikanavaisen toimitusketjun haasteellisuuden juurisyitä. Arvo syntyy kanavien synergiasta ja saumattomasta toimitusketjusta, johon toimittajilla on merkittävä vaikutus.
Tutkimus tuo esille toimittajasuhteiden merkityksen arvon luojina pitkällä aikavälillä ja osoittaa hybridi hankintamallin parhaiten vastaavan omnikanavaisen vähittäiskaupan vaatimuksiin. Vaikka läheiset toimittajasuhteet ja yhteinen kehitystyö osoittautuvat tarpeellisiksi omnikanavaisessa vähittäiskaupassa, kaipaa toimiala edelleen erilaisia toimittajasuhteita.
ACKNOWLEDGEMENTS
First of all, I would like to thank my supervisor Veli Matti Virolainen and Anni-Kaisa Kähkönen for their feedback and advice on my thesis. Also, thanks to all the other professors and LUT in general for providing this valuable learning experience. Additionally, I want to express my gratitude and thank all case company representatives, who made the empirical research of this thesis possible. Thank you so much for taking the time for the interviews!
Finally, I want to thank my family and friends for all of their support during my studies. I would not have graduated without them! A special thanks goes to my fellow students who have been a huge part of my years at LUT. At this very moment as I finish my studies, I feel indescribably grateful for the education, experiences and the lifelong friends I have gained at LUT.
In Espoo, 31th of January 2019 Iida Sarén
TABLE OF CONTENTS
1. INTRODUCTION ... 8
1.1 Background ... 8
1.2 Research questions and objectives ... 11
1.3 Conceptual framework ... 12
1.4 Definitions of key concepts ... 14
1.5 Delimitations ... 17
1.6 Research Methodology ... 18
1.7 Structure of the thesis ... 19
2. THE ROLE OF SUPPLIERS IN VALUE CREATION ... 20
2.1 Buyer-supplier relationship options ... 21
2.1.1 Relationship continuum ... 22
2.1.2 Sourcing business models ... 24
2.2 Value creation ... 25
2.2.1 Value co-creation in supplier relations ... 27
2.2.2 Relational capabilities as a competitive advantage ... 29
2.3 Value creation potential of supply management ... 29
3. OMNI-CHANNEL RETAIL ... 33
3.1 Retail business model ... 35
3.1.1 Business model elements ... 36
3.1.2 Business model innovation and adaptability ... 37
3.1.3 Value creation in the omni-channel retail business model ... 38
3.2 Barriers to omni-channel success ... 40
3.2.1 Distribution system and order fulfillment ... 41
3.2.2 IT-enabled integration ... 48
3.2.3 Supplier relationship management ... 49
3.3 Supplier relations in omni-channel retail ... 51
4. RESEARCH METHODOLOGY AND DATA COLLECTION ... 54
4.1 Qualitative Multiple-case study ... 54
4.2 Data collection ... 55
4.3 Data analysis ... 57
4.4. Reliability and validity ... 58
4.5 Case companies ... 59
5. EMPIRICAL FINDINGS AND ANALYSIS ... 62
5.1 Omni-channel retail characteristics and objectives ... 62
5.2 Supply chain challenges of omni-channel retail ... 64
5.2.1 Inventory management ... 65
5.2.2 Seamless omni-channel operations ... 66
5.2.3 Advanced technology and IT-systems ... 67
5.3 The state of retail business ... 69
5.4 Supplier relations and value creation in omni-channel retail ... 70
5.4.1 Towards close cooperation ... 71
5.4.2 Omni-channel value creation ... 73
5.4.3 Value co-creation ... 75
5.5 Supplier relations as a competitive advantage ... 76
6. DISCUSSION AND CONCLUSIONS ... 79
6.1 Summary of the research findings ... 79
6.2 Managerial and theoretical contributions ... 85
6.3 Limitations and direction for future research ... 85
REFERENCES ... 87
ELECTRONIC REFERENCES ... 100
APPENDICES
Appendix 1. Interview Questions
Appendix 2. Specialist interview questions
LIST OF FIGURES
Figure 1. The framework of this thesis Figure 2. Souring business models
Figure 3. Value generating dimensions of supply management Figure 4. Omni-channel order fulfilment options
Figure 5. Forward order fulfillment options
Figure 6. Case companies’ sales in and number of stores in 2017 Figure 7. Store infrastructure of case retailers
Figure 8. Supply chain challenges of omni-channel retail Figure 9. Characteristics of today’s business environment
Figure 10. Main entities of supply chain challenges in omni-channel retail
LIST OF TABLES
Table 1. Definitions of omni-channel retail
Table 2. The conducted case company interviews
1. INTRODUCTION
This thesis studies supplier relations as a source of value creation in the context of omni- channel retail. As a recent phenomenon, omni-channel retail is examined from the supply chain perspective. The aim of this thesis is to understand the role of suppliers as value creators in today’s economy. More precisely, the study strives to explore supplier relations and their management in the light of value creation in the retail industry. The objective is to learn more about the relevant characteristics and preconditions of omni-channel retail and to find out what kind of supplier relations are suited to meet the conditions of omni-channel retail. First this introduction chapter introduces the background of the topic and presents the research questions and objectives. After explaining the conceptual framework, the key concepts and delimitations are defined. Lastly, the research methodology of the research and the structure of the thesis are presented.
1.1 Background
Business models change as the environment changes. Companies have to adjust to changes in the environment they operate in. This has led to re-evaluating strategies and business models (Raju & Singh 2018). As other industries, also retail has been forced to change along the dynamic environment characterized by technology, network connectiveness and ever more demanding consumers. The landscape of retail has changed dramatically in scope and unexpected in nature (Sorescu, Framback, Singh, Rangaswamy & Bridges 2011; Von Briel 2018). When the Internet transformed business in the 1990s, store-based retail was predicted to be completely replaced by online retailers (Zhang, Farris, Irvin, Kushwaha, Steenburghe & Weitzf 2010). Instead, the retail industry adopted a new more complex business model, which encompasses multiple channels integrated with each other (Yrjölä 2014). Technology and customer-driven changes in the marketplace have created omni-channel retail which enables to expand markets and improve operational efficiency (Xia & Zhang 2010; Piotrowicz & Cuthbertson 2014; Ishfaq, Defee & Gibson 2016; Chen, Cheung & Tan 2018).
The diffusion of advanced mobile technologies enables consumers to gather more information and data about offerings (Gummerus & Pihlström 2011; Piotrowicz &
Cuthbertson 2014). Technology has also brought businesses new ways to track information (Chen et al. 2018; Luo, Fan & Zhang 2016). The rapidly changing business environment
and enormous competition creates a need to constantly monitor the range of channels to improve performance (Ailawadi & Farris 2017; Ishfaq et al. 2016). Previously the challenge was to determine the right and most competitive distribution channel. Nowadays retailers face the problem of integrating all different channels. Retailers are now only discovering the need for technological improvements and strategy re-evaluation. It is believed that technological innovations will further change the retail landscape in the future (Brynjolfsson, Hu & Rahman 2013; Saarijärvi, Mitronen & Yrjölä 2014; Von Briel 2018). Eventually traditional store-based retailers will be forced to move into omni-channel retailing in order to stay in competition (Ishfaq et al. 2016; Von Briel 2018). As an emerging and very current trend, research of omni-channel commerce is justifiable.
Value creation influences the way companies do business and thus has effect on business models (Zott, Amit & Massa 2011; Beattie & Smith 2013; Yrjölä 2014). The focus of the retail industry is shifting from a transaction-based model to focusing rather on superior value. Creating superior value has become a central element, since consumers demand for more individual products and services (Yrjölä 2014; Nelson & Nelson 2004). Moreover, consumers have become more value-conscious through poor economic situations (Berry, Bolton, Bridges, Meyer, Parasuraman & Seiders 2010). Advances in communication and information technologies have led to the decline of costs and thus to new ways of creating value (Zott et al. 2011). This in turn has enabled a more service-oriented value proposition (Saarijärvi et al. 2014). The increasingly customer-driven environment requires a more flexible supply chain. Sourcing is not only seen as procuring goods and services but as a value creating activity (Vitasek 2016a).
In general, the business environment has become more customer focused and literature has shifted emphasis from value capture to value creation (Zott et al. 2011). Thus, this thesis involves value creation as a main concept. The increase of customers’ service expectations has significant implications on the perception of retailer’s performance (Ishfaq et al. 2016) which therefore puts emphasis on consistent order fulfillment. Order fulfillment is a significant determinant of customer satisfaction (Xia & Zhang 2010) and thus should be given focus in research. This further supports the purpose of this study.
Also, the very recent concept of omni-channel is not fully acknowledged yet (Beck & Rygl 2015) although the progress from single to multi- and further to omni-channel retail is wide spread in literature. Academic research conducted on the concept of omni-channel is only starting to emerge (Saghiri, Wilding, Menab & Bourlakisa 2017; Shen, Li, Sun & Wang
2018). Both customer- and retailer-centric research has been conducted on omni-channel retail (Chen et al. 2018). However, there hardly is research focusing comprehensively on omni-channel retail from the supply chain perspective. Instead literature discusses themes such as customer behaviour, channel usage, customer channel switching behaviour and lock-in (Zhang et al. 2010; Verhoef, Neslin & Vroomen 2007; Hosseini, Merz, Röglinger &
Wenninger 2018; Blom, Lange & Hess 2017). While the retail shopping environment is well studied, the supply chain perspective to this dynamic environment remains under researched. Based on this, it is necessary to further study omni-channel retail in the supply chain context. This research need is supported by Chen et al. (2018), who stress the significance of supply chain management in cross-channel integration.
In today’s economy value creation is emphasized as the centre of business. Among other research has been conducted on the significance of supply chain management in value creation (Kähkönen & Lintukangas 2012). According to previous research supplier capabilities and buyer-supplier relationships can act as value drivers of customer perceived- value (Prior 2014; Keith, Vitasek, Manrodt & Kling 2016). Kähkönen and Lintukangas (2018) remind that research on the role of supply management in value creation has been mainly focusing on how the purchasing function generates added value. Thus, there is demand for studies researching the role on suppliers and supplier networks in value delivery. Changes in the retail industry have led to research on the relationships between retailers and end customers (Keeling, Keeling & McGoldrick 2013). Even though buyer-supplier relationships have been studied form numerous different approaches and contexts, there is still lack of research in the retailing context (Grewal, Roggeveen & Nordfält 2017).
Challenges of delivering value to consumers in a multi-channel business environment have been examined in various studies (Saghiri et al. 2017; Yrjölä 2014; Wiener, Hoßbach &
Saunders 2018). However, there is lack of research on value delivery from the supply chain perspective in the retailing context. Sorescu et al. (2011) make a valuable proposition concerning the significance of suppliers in their research about innovation in the retail business model. Also, Ailawadi and Farris (2017) emphasize the role of suppliers in the context of omni-channel retail. However, their studies do not focus on value delivery. This thesis aims to fill the research gap, by providing an empirical study examining supplier relations as a source of value in the omni-channel retail context. All things considered, academic literature seems to be lacking in research on supplier relations in omni-channel retail.
1.2 Research questions and objectives
Considering the dynamics of the retail industry and the need to adapt to the constantly changing business environment there is no doubt that supplier relations have a strategic role in business. The objective of this study is to find out what kind of role supplier relations have in value creation in the evolving retailing context. Hence, this research aims to explain supplier relations and elements behind the relations as value creators in the context of omni- channel business. These considerations can be concluded into the main research question of this thesis:
How has omni-channel retail affected supplier relations as a source of value creation?
The main research problem is divided into few sub-questions. These aim to support the main research question. First of all, omni-channel retail is a very recent phenomenon, which makes the identification of main challenges and characteristics necessary. Understanding elements of omni-channel retail helps to determine suitable supplier relations end explain the value creation logic. Since the rise of e-commerce is seen as both a threat and opportunity to retailers (Handfield, Straube, Pfohl & Wieland 2013; Chen et al. 2018), it is important to understand and identify challenges and potential improvement possibilities.
The objective is to learn more about the relevant elements of omni-channel retailing from the supply chain perspective:
What characteristics and challenges define the omni-channel retail business model?
Changes in the business environment have an impact on the development of business models, customer experience and supplier relationships (Piotrowicz & Cuthbertson 2014).
Thus, it can be argued that adapting omni-channel retail as a new business model has an impact on a retailer’s value proposition and supplier relationships. This makes the second sub-question worthwhile addressing:
How is value created in the omni-channel retail business model and how is it created in supplier relations?
This study adopts a network-centric view, i.e. embraces the boundary-spanning nature of business models. By understanding the nature of today’s value creation logic, also suppliers’ role in value delivery can be better perceived. This helps to identify retailers needs
of their supplier relations. The goal is to establish the optimized sourcing business model to create maximum value for end customers. The first and second sub-question lead to the third, which is to determine what kind of supplier relations best meet the requirements of omni-channel retail and today’s value creation logic:
What kind of supplier relationships are best suited for omni-channel retail?
The sub-questions are connected to the main research question and give structure to the thesis. Previous literature shows that omni-channel retail is still under researched. Thus, the intended outcome of this study is a strong understanding of relevant factors in achieving excellence in omni-channel retailing.
1.3 Conceptual framework
The framework of this thesis displays the connections between the main entities (Figure 1).
This study concentrates on the connections of supplier relationships, supplier relationship management and value creation in the context of omni-channel retail. The framework lies on the hypothesis that retailers and their suppliers co-create value to the end customer in the context omni-channel retail. As an emerging business model omni-channel retail sets preconditions and creates challenges for practitioners operating in retail. Challenges of omni-channel retail are approached from the supply chain viewpoint. To support the aim of this study, value creation is discussed from different perspectives: in general, in the context of omni-channel retail and in relation to suppliers and supply management.
Challenges and main characteristics are displayed within the circles in Figure 1. The inner circle refers to the main elements of omni-channel retail, which are connected to supply chain activities represented in the outer circle of the framework. The framework reflects the strategic role of supply management (Zheng, Knight, Harland, Humby & James 2007;
Kähkönen & Lintukangas 2018) by representing the supplier as a value co-creator (Kähkönen & Lintukangas 2012a; Sorescu et al. 2011; Vargo & Lusch 2004). Strategic supply management is needed to deliver superior value to consumers. Thus, supply chain activities are closely linked to value creation (Sorescu et al. 2011). Business models define how value is created and thus this thesis is built on the believe that the move towards omni- channel retail has led to changes in retailers value proposition and suppliers as sources of value creation.
The framework demonstrates the connectiveness of supplier and retailer. The end customer is in the centre of business to which value is created as a joint effort through various channels. Retailers warehouse, offline and online channels and the supplier are connected through supply chain processes and activities such as inventory, distribution and order fulfilment. The blue circle represents technology enabled channel integration and mutual processes of suppliers and retailers in the supply chain. Supply chain integration increases firm performance (Rodríguez-Díaz & Espino-Rodríguez 2006; Teece 2007; Zhang et al.
2010) and enhances value co-creation (Andreu, Sánchez & Mele 2010).
Figure 1. The framework of this thesis
Warehouse
Supplier
Retail store
Online channel Customer
Complexity Availability
Flexibility Superior
value Supply m
anagem
ent Supplier relationship management Inventory m
anag ement Delivery syst
em &
order fulfillment Channel integration & advanced technological solutions
Omni-channel retail, supplier relations, supply management and value creation create the theoretical setting for this thesis. The concept of value creation will serve as a guideline along the thesis. The theoretical section will form the base for the empirical study. The content is drawn from the contexts of supplier relations and value creation. More specifically, the value creation potential of the case companies’ supplier relations is the main object of analysis in the empirical part of this thesis. The best suiting supplier relations to meet the requirements of omni-channel retail are analysed based on characteristics and supply chain challenges of the business model.
1.4 Definitions of key concepts
All key concepts of this study are defined below in this chapter. The reviewed concepts are relevant for the study and defined in perspective of the context relying on academic literature. The concepts are further discussed in the theoretical part of this thesis.
Omni-channel retail
Omni-channel retailing has emerged through technological development (Sorescu et al.
2011). The development of online services and communications technology has created new channels and thus add complexity to the retail environment (Verhoef, Kannan & Inman 2015). Omni-channel refers to a seamless and coherent shopping experience across channels (Shen et al. 2018). From the supply chain point of view omni-channel retail is seen as a business model that requires retailers to align their online and offline channels through supply chain management activities. (Ishfaq, Defee & Gibson 2016) Saghiri et al. 2017 define omni-channel business as the coordination of processes and technologies across supply and sales channels.
Channel
There exist several different interpretations of the concept of channel in academic literature.
Most commonly literature is simply referring to online and offline channels, such as bricks and mortar stores and Internet websites (Saghiri et al. 2017; Hosseini et al. 2018). In omni- channel retail also multiple touchpoints of customer interaction have been added to the concept of channel (Verhoef et al. 2015). Overall, channels can be defined as various ways to interact with customers. Types of interaction differ in the way products and/or information
is transferred. Berry et al. (2010) take a wider perspective on channels and define them as mechanisms for communication, service delivery and transaction completion. In the context of this study channel is used to refer to the above-mentioned touchpoints for consumer interaction that require different mechanisms, processes, delivery and communication form the retailer.
Business model
A business model explains how value is created and captured (Zott at al. 2011). It defines the data and logic that supports value creation for the customer and the structure of revenues as well as costs for the company (Teece 2010). Business models capture the ways companies use their resources to build customer and firm value (Amit & Zott 2001). It is an activity system that ends up in delivering value to customers, the company itself and other stakeholders.
Sourcing business model
A sourcing business model presents the structure of supplier relationships (Vitasek 2016a).
The business model between a buyer and its suppliers defines the ways in which counterparts interact with each other. A sourcing business model explains characteristics of supplier relationships. It is the portfolio of a company’s’ supplier relations (Keith et al.
2016).
Supply management
Supply management is a wide concept but can simply be defined as the process of obtaining products and services a firm needs to operate their business (Business Dictionary 2018a). Supply management is responsible for supplying products and services efficiently and for finding the most valuable and appropriate suppliers (Kähkönen & Lintukangas 2012a). The concept refers to the management of all activities associated with the processes to serve customers (van Weele 2005). Supply management is the strategic management of external and internal resources and relational competencies in the fulfillment of commitments to customers (Carr & Smeltzer 1997). It considers supply chain management and supplier relationship management defined below.
Supply chain management
The concept of supply chain management is used to describe purchasing and supply activities, transportation and logistics functions as well as management of relationships and value-adding activities along the supply chain. Supply chain management considers both management of physical material and information flow in a supply chain (Thomas & Griffin 1996). The commitment of supply chain partners is essential when coordinating supply chain processes. (Business Dictionary 2018b; Tan 2001) The demand-supply balancing process is seen as a central function of supply chain management (Thomé, Scavarda, Fernandez & Scavarda 2012). Williamson (2008) presents supply chain management as a broad system in which related transactions are grouped and managed as chains. A genuinely integrated supply chain enables to deliver enhanced customer service and economic value (Tan 2001; Mentzer, DeWitt, Keebler, Min, Nix, Smith & Zacharia 2001).
Supplier relationship management
Supplier relationship management refers to the management of the supply base and relationships between supply chain actors (Tidy, Wang & Hall 2016; Forkmann, Henneberg, Naudé & Mitrega 2016). Schuh et al. (2014) consider all interaction between buyer and supplier as supplier relationship management. Moeller, Fassnacht and Klose (2006) see the management of supplier relationships as processes and activities of development eith the aim to generate value within these relationships. The notion is seen as a sub-concept of supply chain management. Supplier relationship management is also required to improve frim performance (Shin, Collier & Wilson 2000). This is achieved through development and restructure of the supply base (Forkmann et al. 2016).
Value creation
Value creation is the process of actions leading to an increase in the worth of a company’s offering or even business as a whole. Nowadays the concept often refers to value creation and delivery to customers, suppliers and other stakeholders. (Business Dictionary 2018c) Perceived value can be defined as the trade-off between the total benefits obtained and the total sacrifices made (Möller & Törrönen 2003). Value that is created is highly dependent on the context and parties involved (Kähkönen & Lintukangas 2018; Yrjölä 2014). In the context of this thesis value creation is addressed as both, value creation to the end customer and value creation in a buyer-supplier relationship.
1.5 Delimitations
This thesis is limited regarding the theoretical framework and the empirical source of data.
Previous studies often encompass not just the aspect of distribution, but also consider channels of communication, payments and earnings. This research has been limited to the supply chain perspective. Omni-channel retail in the context of supply chain management is yet under-researched and therefore the aspect of consumer behaviour is left out. This study focuses on retailers’ perspective on supply chain operations. Thus, this study leaves suppliers’ viewpoint out of consideration. Even though this thesis is limited to the retailer’s perspective on omni-channel retail, value creation is approached from a network-centric view.
Value creation is examined in connection to supplier relations as value to the retailer’s business as well as value delivered to end customers. The closer examination of customer perceived value is left out of this study since it is a wide concept on its own and has been addressed frequently in previous literature. Although various perspectives of challenges and processes of omni-channel retail are overlapping, this study does not include any aspects of omni-channel marketing challenges and channel management from the sales perspective. Also, this thesis does not make a distinction between different customer interfaces, since it investigates omni-channel challenges from the supply chain perspective, which mainly considers distribution and order fulfillment.
The study focuses on merchandise retailing that may include additional services. Taking this perspective instead of focusing on service retail gives a more comprehensive view of the distribution issues and other significant factors in the supply chain. This limitation is justified by the simpler nature of service retailing, which does not need transportation of physical products to complete a sale. Since this thesis focuses on supply chain management, literature that strictly covers marketing issues such as coordination of promotions, customer behaviour and customer lock-in is excluded. Because these elements are somehow relevant and connected to supply chain coordination, the thesis may touch these themes but does not go deeper into them. Furthermore, due to the dynamic and context specific nature of omni-channel retail this thesis cannot reach each scenario and optimization possibility of a retailer’s distribution system and processes.
The empirical part limits this research to a small amount of case companies operating in the retail industry in Finland. However, this limitation is justified since this thesis does not
aim to form generalized evidence about the topic in a statistical sense but rather strives to understand and comprehend the context of omni-channel retail, supplier relations and value creation. The concepts within this study’s framework have all been researched before.
Especially value creation has been approached from multiple perspectives and in various contexts. Hence, this study regards the connections between the chosen concepts and does not aim to fully cover each of them on their own but aims at clarifying and understanding the existing theory.
1.6 Research Methodology
This thesis consists of two supplementary parts, a theoretical and an empirical part. The theory is based on existing academic literature related to the main concepts of this thesis.
Academic sources have been chosen based on their reliability and significance concerning the research objectives. The theoretical part builds a basis for the following empirical part.
It presents the topic to the reader. Also, the theory structures the research field which makes it easier to follow the empirical part later on. The empirical research is conducted as a qualitative study. A qualitative research method was chosen since it is most suitable for the research phenomenon, a yet unknown area to be uncovered using a holistic approach. The aim is to understand, describe and explain the empirical data (Gibbs 2007).
A qualitative study can be conducted with various research methods such as interviews and observation (Metsämuuronen 2005). Using a holistic approach helps to understand and investigate “hows” and “whys” (Kähkonen 2011). The aim is to familiarize with the topic as deeply as possible. Answering questions of “what” aims at presenting a complete description of the phenomenon within its context. This thesis is explanatory and descriptive in nature and thus adopts a multiple-case study research to address the research questions.
The empirical research was carried out through semi-structured interviews with several case companies operating in omni-channel retail. A multiple-case design was chosen to get a holistic view of the current state of omni-channel retail. Case studies are a way to collect data from a practical phenomenon. It is a suitable method to examine complex phenomena, such as omni-channel retail. Also, a case study approach is suitable for examining supply chain management (Kähkonen 2011). Final conclusions were formed by reflecting the empirical analysis against the presented theory and framework of this thesis.
1.7 Structure of the thesis
This thesis is constructed of six main sections. After this introduction chapter the theoretical part of the study is represented. The literature review consists of two chapters. First supplier relations and value creation are examined. The following theory chapter discusses challenges and characteristics of the omni-channel retail business model. After the theoretical part of this thesis the research methodology and empirical results are discussed and analysed. The final section presents the summary of the research findings and managerial and theoretical implications. Limitations and future research opportunities conclude the thesis.
2. THE ROLE OF SUPPLIERS IN VALUE CREATION
Supplier relations have evolved dramatically during the past decades. Firms started to outsource traditionally important activities such as manufacturing, design and logistics.
Outsourcing value activities is dependent on the ability to create strong supplier relationships in areas that have high strategic relevance for the buyer. Nowadays outsourcing activities primarily means joining a supply chain network formed by several tiers of suppliers. (Möller & Törrönen 2003) Outsourcing does not always have to be thought as simply contracting a third party to perform those activities that a firm is unable to perform by itself (Rodríguez-Díaz & Espino-Rodríguez 2006). Instead, it is a decision that can lead to much deeper and closer relationships (Webster 1992).
Companies have various supplier relations depending on the complexity of the marketplace and the strategic needs of the practitioners (Vitasek 2016a). Transactional agreements are most common in conventional supplier contracts. Vitasek (2016a) argues alternative sourcing business models to have a significant role in value creation in more complex, risky, or strategic contracts. Today’s modern sourcing challenges cannot be solely met with the traditional transaction-based sourcing model. Research has shown that companies have also other than costs as motives for outsourcing (Neslon & Nelson 2004). Nelson and Nelson (2004) list technological and strategic motives after costs as the strongest motivations for outsourcing. They stress the importance of re-evaluating sourcing models according to the changes in the business environment.
Sourcing models are part of the overall business model of a firm and to keep outsourcing successful firms have to align their sourcing strategy to better answer the requirements of today’s economy. For example IT sourcing as a complex process requires a more relational sourcing business model. The make or buy decision does not only lie on transaction costs but also on the need for better knowledge and capabilities (Nelson & Nelson 2004).
Sourcing as a strategic action places emphasis on the entire life cycle of a product or service. Strategic sourcing is an approach to supply chain management in which information is gathered and analyzed to find the best possible values in the marketplace. (Tech Target 2018) Supply processes and sources are constantly re-evaluated to optimize value to the organization (Business Dictionary 2018d).
2.1 Buyer-supplier relationship options
The study of supplier relations has been an objective of academic literature for decades.
Among others the focus of research has been on differences between types of relationships.
Academics generally distinguish between transactional and relational relationships (Reinhart et al. 2004; Vesalainen & Kohtamäki 2015; Cannon & Perreault 1999). Relational thingking can be traced back to Macneil’s (1980) disticntion between descrete transactions and relational exchange (Dwyer, Schurr & Oh 1987; Vesalainen & Kohtamäki 2015). The transaction cost theory conceptualizes supplier relations along a continuum with market and hierarchy on opposite ends and relational exchange in the middle (Webster 1992; Cannon
& Perreault 1999).
The market approach refers to transactional procurement of products and services. Buyers rely on competitive market forces. Thus, outsourcing decisions are based on price and service level (Rinehart, Eckert, Handfield, Page & Atkin 2004). The amount of shared information and interaction between parties is minimal (Vesalainen & Kohtamäki 2015; Dyer
& Singh 1998). There exists little dependency and trust, which decreases the switching cost for buyers. Thus, the buyer can easily switch to other suppliers if not satisfied. (Rinehart et al. 2004) The level of investments in governance mechanisms is minimal. In turn, investments are rather made in nonspecific assets (Dyer & Singh 1998). The relationship between buyer and supplier is based on single or multiple transaction situations (Webster 1992).
Ownership governed systems represent the other end of the continuum. These hierarchical forms of equity arrangements are governed by the policies of one party, which has significant control over the design and performance of the relationship (Rinehart et al. 2004).
Large investments, high switching costs, high strategic emphasis and a long-term perspective characterize equity-based relationships (Gundlach & Murphy 1993; Rinehart et al. 2004). Operations of one party are vertically integrated in the operations of the other (Rinehart et al. 2004). Thus, transactions are rather merged together, and goals converged (Gundlach & Murphy 1993). Relationship specific investments are typical of ownership governed situations.
Relational supplier relationships fall in the middle of the continuum. Relationally governed systems emerged trough contracts that meant to simulate hierarchy (Cannon & Perreault 1999). Relational relationships arise from mutually agreed government structures (Rinehart
et al. 2004). Trust appears to be a guiding factor in areas not addressed in the formal contract (Gundlach & Murphy 1993; Nyaga, Whipple & Lynch 2010). Collaboration, partnership, alliances and more recently hybrid models are relational relationship types (Rinehart et al. 2004). This broad range of different relationships are characterized by increasing complexity and switching costs (Gundlach & Murphy 1993). Both parties invest in relation-specific assets and share knowledge with each other (Dyer & Singh 1998).
The traditional make or by decision naturally leads to a transaction-based model (Vitasek 2016b). In situations where organizations have decided to buy, it has been assumed to access resources with the use competitive market forces. Firms seek to develop closer relationships with their suppliers in order to achieve lower costs, improved value delivery and advanced technology (Reinhart et al. 2004). This is often pursued through incentives and shared risks and rewards. (Vitasek 2016b) Supplier relations on a partnership level have been experienced as more successful than mere supplier relations (Nelson & Nelson 2004). Many professionals mistakenly assume that the transaction-based sourcing model is the only way to ensure a profitable supplier relationship (Vitasek 2016b).
Research shows that the transaction-based approach does not always give both parties the wanted results (Vitasek 2016a). The traditional transaction-based model does not necessarily fit into complex and risky situations where innovation and advanced technology is seen as a vital part of business. The resource and capability perspective to the make or buy decision believes that outsourcing develops relational and internal capabilities that will create a sustained competitive advantage (Rodríguez-Díaz & Espino-Rodríguez 2006).
Blomqvist, Kyläheiko and Virolainen (2002) follow a viewpoint combining the transaction cost approach with the knowledge-based perspective. According to this integrationist view, already strongly emphasized by Foss (1999), both approaches should be seen as complements instead of substitutes.
2.1.1 Relationship continuum
Oliver Williamson, professor of economics at the University of California Berkeley, challenged the traditional view of a make or buy decision. According to his Nobel prize winning research “Transaction cost economics” sourcing should be seen as a continuum (Williamson 2008). Williamson’s (2008) research proves that using the transaction-based approach in a complex situation increases transaction costs. The continuum maps market forces as clear outsourcing on one side and corporate hierarchies on the other to represent
insourcing (Vitasek 2016b). Sourcing that fall in the middle of the continuum are referred to as a hybrid approach. Williamson’s continuum demonstrates the make or buy decision. The decision whether to out- or insource is a complex process which includes the determination of the right relationship type. It is mistaken to assume that the make or buy decision always results in either developing the needed capabilities in-house or using the market approach to access qualified sources (Vitasek 2016b).
Vesalainen and Kohtamäki (2015) studied buyer-supplier relationships from the perspective of relationship integration and relational configuration. They challenge the unidimensional continuum and consider relationship integration to consist of three connected dimensions, the economic, structural, and social. Dimensions of previous researches reflect on this broader theoretical perspective (Adler 2001; Kohtamäki 2010). The social aspect is seen as relational capital such as value delivery (Adler & Kwon 2002) and relationship performance (Kohtamäki, Partanen, & Möller 2013). The economic dimension is represented by relationship specific investments and the structural perspective establishes e.g. system and process integration (Vesalainen & Kohtamäki 2015). The level of interaction between these dimensions determines the relationship type.
Vesalainen and Kohtamäki (2015) argue prior academic literature to assume these elements to be independent. However, their study identifies same types of relationships as considered in existing literature to fall along a continuum (Rinehart et al. 2004; Dwyer et al.
1987). Specifically, their research confirms the extreme ends of the relationship continuum.
This implies that despite of the perspective the extreme ends of buyer-supplier relationships are transactional relationships and partnerships. In addition, the results of their research show the importance of the context in which supplier relationships are build. The link between buyer-supplier configurations and level of performance is evident. Research proves that performance may increase with increased integration between buyer and supplier (Vesalainen & Kohtamäki 2015; Rodríguez-Díaz & Espino-Rodríguez 2006; Teece 2007; Zhang et al. 2010).
The distinguishing elements of buyer-supplier relationships give a better understanding of differences between supplier relations. Varying attributes have been used to define different types of buyer-supplier relationships (Prior 2012; Ferrer, Ricardo, Hyland & Bretherton 2010; Schleimer & Shulman 2011). Rinehart et al. (2004) underline trust, interaction frequency and commitment as distinguishing attributes. Their study establishes various types of relationships trough cluster centres. Relationships on the market end of the
continuum are named non-strategic transactions and alliances are placed at the opposite end of the continuum. These are relationships with the highest level of trust and interaction frequency where both parties have invested in the relationship to gain mutual benefits. Trust as an element of buyer-supplier relationships is strongly emphasized as key to successful cooperation (Blomqvist et al. 2002; Nelson & Nelson 2004; Dwyer et al. 1987; Ståhle &
Laento 2000; Nyaga et al. 2010). Blomqvist et al. (2002) believe that trust acts as a mechanism providing a solution to failed partnership agreements.
2.1.2 Sourcing business models
In the current dynamic and volatile business environment there is a need for alternative sourcing models. Williamsons sourcing continuum has been used to categorize sourcing business models. These models differ in their risk level and reward possibilities. Altogether seven different sourcing business models have been identified and categorized according to Williamson’s inspired categories. These are mapped out in figure 2. Despite various names for alternative delivery methods and contract types, they all fall along the sourcing continuum (Vitasek 2016b). The key is to identify needs and select the right sourcing business model accordingly. A sourcing business model can be characterized as a system that is optimized for the purpose of the business. Therefore, the selection should always be made in the actual context of what is being supplied (Vitasek 2016b).
Figure 2. Souring business models (Vitasek 2016b; Vitasek 2016a)
Vitasek (2016b) argues those who embrace collaborative relationships to be successful in the future. The more sophisticated sourcing business models which are designed to create
value and help drive transformation and innovation with suppliers will serve as a competitive advantage. Even though transactional sourcing business models have been criticized they certainly are suitable for some environments and needs. However, generally hybrid models have been proved to best fit the current economic environment where complexity needs to be responded to with flexibility. The weakness of a transaction-based approach emerges when variability, high degree of uncertainty, mutual dependency and high asset specificity become a part of the transactions (Vitasek 2016b; Blomqvist et al. 2002).
Blomqvist et al. (2002) challenge traditional transaction cost economics by introducing a transaction benefits-based analysis on supplier relationships. They evaluate different economics of organization-based approaches and combine these to build a dynamized and extended governance cost minimizing model. Their study suggests that hybrid arrangements are favourable in certain conditions but may lead to disappointing outcomes due to transaction costs and opportunism. However, a hybrid model enables to combine the benefits of both economies of scale and scope. Blomqvist et al. (2002) include the dynamic transaction and management costs and benefits in their research. The objective is to find a governance structure which enables joint surplus. This requires building trust and consideration about different benefit-generating determinants.
According to Vitasek (2016b) determining the right sourcing business model is a question of two components: the most appropriate relationship and economic model. Determining the most appropriate relationship model includes mapping the overall level of dependency, risk and strategic impact of the supply. The economic model determines how the economics of the relationship are managed. Determining the best fitting sourcing model enables firms to benefit as much as possible from supplier relations. Firms should purposely create highly collaborative relationships when there is potential to create mutual advantage by collaborating with suppliers (Vitasek 2016b).
2.2 Value creation
The concept of value creation poses a wide range of perspectives and definitions. It has been discussed in numerous contexts due to its diverse nature. However, it is clear that value creation is closely linked to business models (Amit & Zott, 2010; Raju & Singh 2018) and collaborative relationships (Walter, Ritter & Gemünden 2001). A business model outlines how value is created and appropriated (Amit & Zott, 2001). This indicates the two
sides of value creation: value for the customer and value for the firm. According to Gupta and Lehman (2005) these cannot be separated in a business engagement. Customer value simply refers to the value created to customers (Woodruff 1997) and firm value as the value a frim appropriates from business (Sorescu et al. 2011). Bowman and Ambrosini (2010) make a valuable statement by proposing that value means different things to different stakeholders. In addition to value creation and value capture they make a distinction between use value and exchange value. Use value can be referred to as tangible and intangible resources which provide exchange value, a monetary amount exchanged by counterparts when use value is traded.
Peter Drucker (1954) introduced the concept of business value and value creation in the 1950’s. According to him a firm’s primary goal is to create value. Already Drucker (1954) understood the context specific nature of value creation and suggested that value is created to customers, employees and partners. Since then the concept of value creation has been discussed by numerous researchers and evolved over time. Michael Porter (1985) based value creation on value chain thinking. His traditional framework is based on the activity- based theory of the firm and has been criticized to be too narrow. In particular, Porters framework analyses value-adding activities without considering the links between the firms in the value chain (Kothandaraman & Wilson 2001). In today’s economy the resource-based theory is the dominant theory behind value creation (Wernerfelt 1984). The most recent value net perspective to value creation views firms as a complex interdependent value network where success is dependent on collaboration and relationships of practitioners (Parolini 1999). In this context value creation can be defined as the process of combining the capabilities of counterparts.
The model of value creating networks provides a more flexible approach to value creation (Bovet & Martha 2000). A value net is the entity that brings together and combines the different capabilities and resources to produce the wanted output (Oksanen, Hallikas &
Sissonen 2010). The ability to organize the value net in a way that creates superior value to end customers determines the level of efficiency and success. A value net is formed around customers for practitioners to be able to respond to changes in customer preferences and behaviour (Bovet & Martha 2000).
2.2.1 Value co-creation in supplier relations
The mediating role of partnership quality has been discovered to merge from a cooperative relationship based on trust, benefit and risk share, communication and commitment (Nelson
& Nelson 2004). Rodríguez-Díaz and Espino-Rodríguez (2006) argue a close long-term cooperation, joint planning of sales strategy and operations and shared knowledge to be the optimum relationship elements for today’s business environment. They stress integration as an enabler for optimization, development and innovation, continuous improvement and consolidation of market position. Value creation as a joint effort naturally requires sustained joint efforts (Möller & Törrönen 2003) which stresses the importance of continuous collaboration. Suppliers and buyers must act as an integrated unit so that it becomes difficult to distinguish where processes end and begin (Rodríguez-Díaz & Espino- Rodríguez 2006). The concept of value co-creation applied to relationships between buyer and supplier refers to jointly created value for each other and the buyer’s customers (Sorescu et al. 2011; Vargo & Lusch 2004). The role of buyer-supplier collaboration in value creation lies on the value net approach (Kähkönen & Lintukangas 2012a).
Value is created through a process based on interconnected relationships by simultaneous value creating activities combining resources and capabilities (Stabell & Fjeldstad 1998;
Amit & Zott 2001). It is a complex set of activities among multiple players (Zott et al. 2011).
The counterparts produce something that they could have not achieved at all or as effectively independently (Hammervoll & Toften 2010). Hammervoll and Toften (2010) have researched value creation initiatives in buyer-supplier relationships and their findings suggest that appropriate value creation initiatives vary in different types of relationships.
They make a distinction between value creation initiatives that are important in transaction- based and interaction-based relationships. Value creation in a transaction-based relationship equate to cost effectiveness. In turn, value creation in interaction-based relationships involves joint participation and is concerned with mutual learning. Interaction- based relationships entail effective communication and ongoing mutual adjustments to each other’s circumstances. (Hammervoll & Toften 2010)
Hammervoll and Toften (2010) base value creation initiatives in transactions on the transaction cost theory by Williamson. The identified initiatives show flexibility, contribution and motivation towards the agreement. As a value creation initiative proposed by Dyer and Singh (1998), “logistical” information refers to information exchange such as supply information relevant to exchange partner’s logistical operations. The exchange of delivery
schedules and production process can decrease transaction costs and thus creates value.
Hammervoll and Toften (2010) examine previously identified value creation initiatives for interactions: development of problem-solving skills, sharing valuable proprietary knowledge, willingness to combine complementary strategic resources and relationship specific investments. Their research however establishes only discussing exchange partners’ problem solving and knowledge sharing as value creation initiatives. Their findings suggest that the before mentioned initiatives are prerequisites for cooperation in interactions and commitment, rather than value-creating initiatives in their own right.
Close collaboration enables firms to harness supplier innovation and leverage the assets of suppliers (Vitasek 2016b). Rodríguez-Díaz and Espino-Rodríguez (2006) list innovative capacity to result of fruitful long-term collaboration. They see value co-creation as a possibility for both parties to develop their internal capabilities. Studies on value co-creation show that competitive advantage can be achieved through improved value management (Payne, Storbacka & Frow 2008). Value co-creation has been mainly addressed in the context of service-dominant logic (Vargo & Lusch 2004; Andreu et al. 2010). The concept challenges the traditional view of suppliers as value facilitators (Grönroos 2008). Successful co-creation requires learning and knowledge (Payne et al. 2008) and is achieved through complex interactions and dialogues between parties (Tynan, McKechnie & Chhuon 2010).
In addition, it includes access to new know-how and resources (Andreu et al. 2010).
Suppliers indirectly co-create value to their counterparts’ customers by conducting development actions that add value first directly to the buying firm and consequently to the final customer (Zhang & Chen 2008). They act as value creation participants by shaping their business and indirectly enhancing the customer experience by modifying their own supply chain in response to consumers’ needs (Coughlan & Soberman 2005). Hamel (2000) recognizes the role of third-party resources in the value creation process and combines this view with new business models. According to him value creation should be approached from a network perspective. This applies that creating superior value and captivating customer experiences to consumers is dependent on suppliers’ resources. The key is to know how to utilize suppliers’ resources and capabilities (Kähkönen & Lintukangas 2012a).
Value co-creation in cooperation with suppliers positively influences the buyers service capability (Zhang & Chen 2008). Thus, business partners and suppliers are increasingly integrated closely to buyers’ core business processes (Galbreath 2002).
2.2.2 Relational capabilities as a competitive advantage
A relational analysis of outsourcing activities suggests that firms can expand their critical resources and integrate inter-business routines and processes (Dyer & Singh 1998).
Creating value together with suppliers may disclose new sources of competitive advantage (Zhang & Chen 2008). The ultimate goal is to gain competitive advantage that is hard to imitate by competitors. Rodríguez-Díaz and Espino-Rodríguez (2006) define relational capabilities as the ability to combine relational resources. Relational capabilities are developed through a process in which firms decide to deepen their collaboration with the goal to improve their competitive position in the market (Webster 1992). Interaction results in a specific type of understanding between firms. This mutual understanding materializes in commitment and trust (Dwyer et al. 1987), which then leads to the development of shared culture and values (Rodríguez-Díaz and Espino-Rodríguez 2006). Firms start to develop integrated processes, exchange information and transfer knowledge. This kind of relationships that are built on common synergies create new capabilities (Handfield et al.
2013).
Dyer and Singh (1998) argue that the development of relational capabilities depends on the specific assets in the relationship, efficient governance of the relationship, shared knowledge and routines as well as complementary resources and capabilities. Rodríguez- Díaz and Espino-Rodríguez (2006) however, point out that those relational assets to materialize into something practical and tangible firms need to analyse their core competence, outsourcing activities and process integration. Thus, not all kinds of buyer- supplier relationships are favourable for the development of relational capabilities. To achieve a certain level of close collaboration is not enough but has to be sustained while developing dynamic capabilities (Teece, Pisano & Shuen 1997). Relational capabilities cannot be immediately rebuilt by switching to another supplier with similar characteristics (Rodríguez-Díaz & Espino-Rodríguez 2006; Blomqvist et al. 2002). These capabilities rise from close collaboration and need suitable conditions to be reconstructed, which increases the value of close buyer-supplier relationships.
2.3 Value creation potential of supply management
It has been widely acknowledged that supply management as a strategic business function contributes to the competitiveness and performance of a firm (Ellram & Carr 1994; Zheng et al. 2007; Shin et al. 2000; Carr & Pearson 1999). Traditionally supply management is
seen as the purchasing department, which corresponds to value creation mainly through savings achieved from good negotiations (van Weele 2005). Since then value creation logic has been extended to the context of a network (Stabell & Fjeldstad 1998; Parolini 1999;
Bovet & Martha 2000; Oksanen et al. 2010). Firms do not operate on their own but create value in a network of suppliers, partners, distribution channels and coalitions (Hamel 2000).
This perspective builds on the collaboration between buyers and suppliers and emphasizes the role of suppliers as a source of value (Möller & Törrönen 2003; Kähkönen & Lintukangas 2012b; Kähkönen & Lintukangas 2012a; Kähkönen & Lintukangas 2018). Supply management encompasses the responsibility to determine the value creation potential of existing and possible suppliers (Kähkönen & Lintukangas 2012a).
The most traditional and simplified value is reflected by the market price of the resource that can be transacted through competitive markets (Möller & Törrönen 2003). Today value lies not only in monetary savings, but also in nonmonetary intangible elements that satisfy demand (Kähkönen & Lintukangas 2018). Smals and Smits (2012) differentiate between direct and indirect value from which the first refers to the volume and profitability of orders within a relationship whereas the latter indicates obtained benefits outside the relationship.
These are suppliers helping buyers in innovation and development. Möller and Törrönen (2003) have also studied different types of supplier value and classify a supplier’s value potential into dimensions of efficiency, effectiveness and network. Their study is based on the network perspective of Ford and McDowell (1999), who divide value creation into four different levels. The influence of functions and actions carried out in a relationship should be analysed on these levels. The fist level refers to direct effects in a relationship, activities that create transaction value. The second level concerns decisions that have long-term effects and change the state of a relationship. The third refers to the effects on the relationship portfolio. The last and fourth level encompasses the effects on a wider network.
Figure 3. Value generating dimensions of supply management (Kähkönen & lintukangas 2018; Kähkönen & Lintukangas 2012a)
Figure 3. shows the dimensions and actions of supply management that have a significant impact on the value creation potential of supply management (Kähkönen and Lintukangas 2018) and connects supply management with value creation and competitive advantage (Kähkönen & Lintukangas 2012a). The research of Kähkönen and Lintukangas (2018) illustrates the importance of strategic supply management, supplier relationship management capabilities and the development of collaborative key supplier relationships.
The ability to manage supplier relationships helps firms to control and access economic consequences of collaborative actions. This helps firms to execute their supply startegy.
Firms have to understand the supplier network and build their supplier relationship management on knowledge-based capabilities. The value creation potential of supplier relationship management indicates a firms’ capability to utilize its suppliers resources and know-how (Kähkönen & Lintukangas 2018). According to Blomqvist et al. (2002) firms have to figure out how to combine internal with external resources and capabilities in the most
efficient way. This view is supported by the resource dependency theory, which concerns the management of external resources. It offers support for relationship management, which is to an increasing extent seen as a dynamic capability (Forkmann et al. 2016).
Shin et al. (2000) argue the level of supply management to improve both buyer’s and supplier’s performance. According to their research firm performance is increased especially when the buyer emphasizes quality and delivery as its competitive priorities. Carr and Pearson (1999) argue strategically managed long-term relationships with key suppliers to impact firm’s fincnacial performance. Kähkönen and Lintukangas (2012a) present the level of collaboration between parties as the foundation of supply management’s value creation potential. Also, Hammervoll and Toften (2010) as well as Möller and Törrönen (2003) see collaboration as a prerequisite for value creation in relationships. In addition, they suggest that both parties have to be willing to combine complementary strategic resources and invest in relationship-specific resources. Firms who manage to build collaborative supplier relationships and see supply management as a strategic function have the potential to co-create value with their suppliers. The significance of supply management and its value generating dimensions indicates suppliers clearly having a role in value creation (Zhang & Chen 2008; Kähkönen & Lintukangas 2018; Dyer & Singh 1998;
Hammervoll & Toften 2010). Collaborating with suppliers may lead to new sources of competitive advantage (Zhang & Chen 2008).
3. OMNI-CHANNEL RETAIL
Research and practice indicate that operating in multiple channels can lead to improved financial performance (Zhang et al. 2010; Oh, Teo & Sambamurthy 2012; Xia & Zhang 2010). The benefits of multi-channel retail where at first questionable because of limited Internet access of consumers. Also, e-commerce was first seen as a temporary and yet unknown area, which companies wanted to keep as a separate division (Hobkirk 2016). At that time there was no empirical prove of the long-term value of e-commerce operations.
Nowadays the benefits of online sales are widely recognized (Wu, Mahajan &
Balasubramanian 2003) and retail is characterized by increased complexity and customer focus (Woodruff 1997; Ishfaq et al. 2016; Saghiri et al. 2017; Abdulkader, Gajpal &
ElMekkawy 2018). Online channels have proven to provide significant improvements in sales, cost efficiency, customer satisfaction, inventory and return on investment (Xia &
Zhang 2010; Wu et al. 2003). Operating through an online channel is not just selling products but additionally providing related services (Ishfaq et al. 2016).
Today a predominant objective in retail is the shift from multi-channel to omni-channel retailing (Verhoef et al. 2015; Beck & Rygl 2015; Piotrowicz & Cuthbertson 2014). This denotes growth in the number of channels and blurry boarders between them (Verhoef et al. 2015). Also, boundaries between physical and online channels start to disappear (Hübner, Holzapfel & Kuhn 2016). From the customer point of view channels of a multi- channel retailer do not overlap. In turn omni-channel retailers offer consumers the possibility to interact across channels. Consumers can buy products online but pick them up from a store, i.e. processes are designed and integrated across channels. The objective of omni- channel management is to maximize total sales over channels and deliver an overall satisfying retail customer experience for consumers (Verhoef et al. 2015; Yrjölä 2014). The concept of omni-channel has become the new trend and superior value creation a central success factor in retail (Saghiri et al. 2017; Yrjölä 2014; Teece 2010).
Generally, literature describes retailers operating through multiple channels as multi-, cross and omni-channel. The terms are used synonymously and academics often refer simultaneously to all three concepts. Beck and Rygl (2015) state that retailers can only be described as omni-channel if their channels are fully integrated. This suggests the concepts differ in the degree of process, data and channel integration. According to Yrjölä (2014) and Hübner et al. (2016) the concept of omni-channel retail is better approached from the customer perspective. A retailer can be referred to as omni-channel if channels are
